Use Vested to Mitigate “Vicarious Liability”

Nothing can ever fully insulate a business from “vicarious liability” lawsuits—which can bring a company to its knees in quick order—but a Vested partnership with a shipper, supplier, 3PL or transportation provider will go a long way to avoiding those kinds of issues.

TranzAct Inside, a group that provides valuable information and research on transportation management, has called attention to this issue in an executive briefing, “27 Million Reasons for Shippers to Address Vicarious Liability.”

“These are big issues for shippers,” says Mike Regan, president of TranzAct Technologies. And in many cases they are not on the C-level radar screen, he adds.

There are more frequent and more expensive judgments involving vicarious liability against carriers, their agents and shippers. Shippers are exposed through the principle of “vicarious liability,” a form of secondary liability that assigns responsibility to the superior for the acts of their subordinate, i.e., the responsibility of any third party that had the “right, ability, or duty to control” the activities of a violator.

Regan cites two recent judgments as prime examples of this.

In an Oregon case, Linhart v. Heyl Logistics LLC, a jury found that Heyl Logistics failed to perform due diligence when it hired a Washington Transportation driver to haul goods for bottled water giant Nestle Waters North America. They awarded $5.2 million to the family of a person killed in an accident, when the driver fell asleep at the wheel. (The facts in the case indicated that the driver was coming off of a crystal methamphetamine high.)  It is apparently the first punitive damages verdict against a transportation broker in a case involving a negligent hiring claim.

Another case, Nancy Hoffman v. Dorlan Crane, et al., finalized this month in Illinois resulted in an award of more than $27 million to a woman left paralyzed when a truck carrying steel coils ran into her vehicle. The judgment was against the company that the driver leased the truck from, the logistics company that arranged the transportation and the coil supplier. The shipper was found liable due to the manner in which it sourced and contracted its carriers, under the principle of vicarious liability.

The TranzAct briefing points to three important lessons from these cases and the layers of liability:

  1. “Evaluate all of your carriers and brokers in all modes and regions on an ongoing basis.
  1. “Understand, at all levels in the organization, how current sourcing and contracting practices protect you or create the potential for liability.
  1. “Ensure that you have valid contracts in place with all vendors, inbound and outbound.”

TranzAct concluded: “In addition to an increased number of cases and more costly judgments on the horizon, the myth that brokers provide an extra layer of protection for the shipper has been dispelled.”

It also shows the danger that can occur when transportation and supplier arrangements are not carefully assessed and monitored from the beginning of the contractual arrangement.

Vested Outsourcing is a major shift away from the traditional, lowest-cost, risk-averse, gotcha! way of writing transaction-based outsource and business contracts.

A good example of a Vested supplier relationship comes from McDonald’s and  Lopez Foods.  Lopez has been supplying McDonald’s with 100 percent beef for nearly 30 years and is obsessed about food safety, as you can see from this video.  I think you will agree  after watching the video that the value of a Vested relationship is obvious.

Bottom line, business and events happen that are beyond anyone’s control.  But as the video shows, Lopez clearly understands the responsibilities and ramifications of food safety. Perhaps Nestle and the others that pushed the risk should begin to look inward and align with high quality strategic suppliers that embrace responsibility to protect their customers.

My bet is on companies like McDonald’s who have strategically chosen to develop Vested relationships with their suppliers like Lopez.

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